Bank Resolution Tax Is Gaining Steam

 |  Includes: KBE, KRE, RKH, XLF
by: Tom Lindmark

The WSJ reports that the idea of a bank tax to fund future resolution efforts is gaining steam:

The U.S. and European governments are moving toward a consensus on taxing large banks to cover the cost of any future bailouts rather than asking taxpayers to foot the bill, as happened regularly in past banking crises.

The tax proposals vary. Germany and Sweden would use the money to fund a “resolution authority” that would use the money to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed.

The U.S. is split. Congress is moving toward imposing a levy to build a fund before a crisis. The Obama administration favors the post-crisis option, a difference that will be worked out as financial-regulation legislation moves through Congress.

If we do go down the road of collecting taxes from them at the outset, will the revenues simply disappear into the maw of the government like social security receipts? Do we just get another trust fund full of IOUs that get cashed in at the worst possible time?

I don’t necessarily dislike the idea, but let’s be honest about what we do with the money. I’m also a little fearful that this sort of thing could derail or at least water down a resolution authority with teeth.

My view is that it’s imperative that whatever emerges from Congress should include a strong provisions for shutting down failing financial concerns regardless of their size as well as clear direction that rescuing failing institutions is the last and least preferred option.